Unlocking value with Next-Gen operating models: McKinsey

Organisations must commit to next-generation operating models to deliver value in a digital, customer experience-driven world, according to a McKinsey report.

“This operating model is a new way of running the organisation that combines digital technologies and operations capabilities in an integrated, well-sequenced way to achieve step-change improvements in revenue, customer experience, and cost,” the report said.

The report is authored by McKinsey associate partners, Albert Bollard and Elixabete Larrea, and senior partner Alex Singla, who argue there is no shortage of ambition from organisations, but few are delivering lasting, effective changes.

“They want to deliver great customer experiences, take advantage of new technologies to cut costs, improve quality and transparency, and build value,” the authors write.

“The problem is that while most companies are trying to get better, the results tend to fall short.”

One of the main steps to delivering these changes, and a key differentiator for leaders, is the implementation of a next-generation operating model that leverages digital and automation, according to the authors.

The new operating model can be conceptualised in two parts, each requiring significant operational changes.

Shift 1: From running uncoordinated efforts within siloes to launching an integrated operational-improvement program organised around journeys

While many organisations have implemented performance-driven changes, too often they are siloed or housed “housed within separate organisational groups.”

This means that incremental gains can be somewhat illusionary, as they fail to deliver significant, sustainable benefits, the authors said.

The solution, according to the report, is to take a more holistic approach in considering how operations can deliver fulfilling, distinctive customer journeys.

“The best way to do this is to focus on customer journeys and the internal processes that support them. These naturally cut across organisational siloes,” the authors said.

These journeys then become the “preferred organising principle.” The report recommended identifying 15 to 20 key journeys that deliver the most value in the quickest way.

“We often find that companies fall into the trap of simply trying to improve existing processes. Instead, they should focus on entirely reimagining the customer experience, which often reveals opportunities to simplify and streamline journeys and processes that unlock massive value.”

Shift 2: From applying individual approaches or capabilities in a piecemeal manner to adopting multiple levers in sequence to achieve compound impact

Business Process Outsourcing (BPO) – Improves cost efficiency by partnering to complete specific tasks or functions. “This approach typically works best for processes that are manual, are not primarily customer facing, and do not influence or reflect key strategic choices or value propositions.”

Lean process redesign – A methodology centred on streamlining processes and reducing waste, while also fostering a culture of continuous improvement.

Source: McKinsey

Successful implementation of these capabilities means maximising their effect and avoiding complacency, the authors said.

“Having something already under way is a truism: everyone has something under way in these kinds of domains, but it is the companies that press to the limit that reap the rewards.”

It is also crucial that the capabilities be implemented in the right order, depending on an organisations position and environment.

“The best results come when the levers can build on each other. That means, in practice, figuring out which one depends on the successful implementation of another,” the authors said.

For example, analytics and IPA is rendered ineffective without the data from digitisation.

According to the authors these five capabilities should not exist in isolation and their interaction produces a “multiplier effect”.

Starting from the top

Implementing a next-generation operating model requires organisational buy in and senior leaders have an important role to play in initiating this process, the authors said.

“They must first convince their peers that the next-generation operating model can break through organizational inertia and trigger step-change improvements.”

“With broad buy-in, the CEO or senior executive should align the business on a few key journeys to tackle first. These can serve as beacons to demonstrate the model’s potential.”

The Author

Joseph Brookes

Joseph Brookes is a writer and content producer for Which-50.com and the Which-50 Digital Intelligence Unit. He has covered the impact of digital transformation on Australian businesses with a particular focus on the media, financial services and governments sectors. Joseph is also responsible for Which-50's multimedia products including the production of video, podcasts and animated graphics.

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